The qualified emerging technology company (QETC) tax credits have been created to enhance emerging technology industries in New York State. The NYC Accountants at MEDOWS CPA, PLLC have helped clients in both registration and preparation of this tax credit. The three tax credits that are available are the QETC employment credit, the QETC capital tax credit, and the QETC facilities, operations, and training credit. The tax credits are available for personal income tax taxpayers. A qualified emerging technology company is, as defined by section 3102-e of the Public Authorities Law (PAL), a company located in New York State that has a total annual product sales of $10 million or less, and meets either of the following criteria:
- has its primary products or services classified as emerging technologies, or
- has research and development activities in New York and a ratio of research and development funds to net sales that equals or exceeds the average ratio for companies surveyed by the National Science Foundation (NSF).
Qualified emerging technology companies also includes re-manufacturing technologies, defined as processes whereby eligible commodities are restored to their original performance standards and diverted from the solid waste stream.
QETC employment credit
A QETC employment credit is available when:
- the taxpayer is a qualified emerging technology company; and
- the average number of individuals employed full-time by the taxpayer in New York during the taxable year is at least 101% of its “base year employment.”
Base year employment means the average number of individuals employed full-time by the company in New York State during the three tax years immediately preceding the first year in which the credit is claimed.
The amount of the credit is equal to the average number of full-time employees in New York State for the current tax year, minus the base-year employment, multiplied by $1,000.
To claim this credit, you must complete Form DTF-621, Claim for QETC Employment Credit.
QETC capital tax credit
The QETC capital tax credit is computed on each qualified investment made during the taxable year in a certified qualified emerging technology company and is equal to the sum of:
- 10% of qualified investments in certified qualified emerging technology companies, if the taxpayer certifies to the Commissioner of Taxation and Finance at the time the credit is claimed that the qualified investment will not be sold, transferred, traded, or disposed of within four years from the close of the tax year in which the QETC capital tax credit is first claimed; and
- 20% of qualified investments, if the taxpayer certifies to the Commissioner of Taxation and Finance at the time the credit is claimed that the qualified investment will not be sold, transferred, traded, or disposed of within nine years from the close of the tax year in which the QETC capital tax credit is first claimed.
A qualified investment means:
- The contribution of property to a corporation in exchange for an original issue capital stock or other ownership interest; and
- The contribution of property to a partnership in exchange for an interest in the partnership; and
- Similar contributions to a business entity not in corporate or partnership form in exchange for an ownership interest in the entity
- A certified qualified emerging technology company means a QETC that filed Form DTF-620, Application for Certification of a Qualified Emerging Technology Company, and has been certified as a QETC by the Commissioner of Taxation and Finance.
QETC facilities, operations, and training credit
To qualify for the credit the QETC must:
- Have 100 full-time employees or less, with at least 75% of those employees employed in New York State;
- Have a ratio of research and development funds to net sales which equals or exceeds six percent (6%) during its tax year; and
- Have gross revenues, along with the gross revenues of its affiliates and related members that did not exceed twenty million dollars for the immediately preceding tax year.
The amount of the credit is the sum of the following amounts:
- 18% of research and development property and costs and fees incurred in connection with emerging technology activities;
- 9% of qualified research expenses paid or incurred by your business during the tax year; and
- 100% of qualified high-technology training expense paid or incurred by your business, limited to $4,000 per employee per year.
Research and development (R&D) property for purposes of the research and development credit component is property that is:
- Acquired by purchase as defined in section 179(d) of the Internal Revenue Code,
- Placed in service during the tax year, and
- Used in research and development in the experimental or laboratory sense.
Qualified research expenses means expenses associated with in-house research and processes, and costs associated with the dissemination of the results of the products that directly result from such research and development activities. Such costs do not include expenses for advertising or promotion through media, litigation or the challenge of another entity’s intellectual property rights, or for contract expenses involving outside paid consultants.
Qualified high technology training includes a course or courses taken and satisfactorily completed by an employee of the business at an accredited, degree-granting, post secondary college or university in New York State that directly relate to emerging technologies and are intended to upgrade, retrain, or improve the productivity or theoretical awareness of the employee. Please feel free to contact one of our NYC Accountants for more information on QETC Tax Credits and how they may affect you.